when should i try to refinance?

[Anonymous]

I purchased a used car (2008 Ford Escape) in February 2010, just over a year ago.  When the dealer ran my credit, my score was 460.  I was able to get the loan because my boyfriend (now ex) was also on the loan, even though his credit was almost as bad, he at least had some accounts in good standing and we were approved by one large dealer after shopping at several.  I'm not necessarily concerned about refinancing because of him or to take him off the loan since we are no longer together, we are friends and on good terms and he is not concerned about it as long as I pay the car, which I will.

I do want to try to refinance eventually (with him off the loan) because of my high APR and monthly payment of $515.  I'd like to get that payment down to $400/month or less and it would be nice to be dumping more money into the principle instead of mostly into interest

Since purchasing the car, after about 6 months my score went from 460 to about 550.  After awhile longer, I applied and was approved for an unsecured credit card with a low ($300) limit but high APR.  I received the card last October/November and have been using it frequently.  I pay it off every month and neither the credit card nor the car has ever been late.  I pulled my score again today and it is 615.

When can I consider trying to refinance the auto loan?  I owe about $17k on the remaining 5-years of the loan.

Thanks for any help

[Creditaddict]

Your biggest problem is how upside down you sound like you are... a bank is not going to refinance at more than 100% and with lower 600 scores, they probably don't want to refi more than a 80% loan to value.

Are you a member of a local credit union?

Can you put cash down if your are upside down?

[Anonymous]

Hi, thank you for your response.

I haven't run numbers but as well as I can figure in my head, I don't think I'm too upside down on the loan.  I'm positive that I owe more on the loan than the car is worth but with low miles and condition, the car I imagine is worth 13-14k, which is not too bad off when I owe 17k.  I could likely put down a few thousand when I try to refinance, which I don't anticipate doing for a little while at least - I wasn't even thinking about trying right now, but more inquiring about when might be a good time?  At what point will I be 'in the clear' enough for it to even be worth it?

Like, if I were to wait until my FICO hits 650+ and have 2-3k to put down so that the loan amount is more in line with what I hope the car to be worth, could I possibly get the payment lowered to what I want ($400/mo or less)?

Like I said, I don't really know a whole lot about this but am learning.  My credit has been bad for 7 or 8 years, I pretty much destroyed it at 19 and am finally beginning the repair process - learning as much as I can as I go.

Thanks!

[cdtotten]

If the car is worth $13,000 and you owe $17,000, then a lender isn't even going to consider refinancing. As mentioned above, especially for someone with pretty bad credit, a lender probably wouldn't want expose themselves more than 70-80%. It sounds like you a took out a car loan that you couldn't really afford (financing a car over 6 years is never a good idea, and at a high interest rate is even worse), and now are feeling the unforunate side effects.

For a major lender, your scores and the car you want to refi won't do.. you may have a little more luck with a credit union, but even then I would be skeptical.

My suggestion, save up atleast $6-8k and then you can consider refi-ing.

[Anonymous]

I can afford the car, but who wouldn't lower their payment if they could ... ?  Like I said, never a late payment in over a year - that's not so much the issue, but when so much is going towards interest rather than the principle, is what is frustrating.  If I have to continue paying the car at the monthly rate that it is, including for the duration of the loan, then so be it.

I think that is what is not really being understood - I have no intentions of even attempting to re-finance right now - I simply was curious when might be a good time.  I knew that my APR was high, I know that I owe more on the car than it is worth, I knew walking into the purchase that it was going to cost me a lot of money and a lot more money than it would've if my credit wasn't shot.  But when you need a car, you need a car.  I'm happy with the car and I'm fine with the payment, but as I said, if at some point I can re-finance and lower the payment, I'd like to know when that time is.

Anyway, thanks for the help.

[Anonymous]

Your time frame is going to be based upon how fast you save up the money to put down when you go to do a refi. You'll need at least enough to off set the amount your upside down.. Also if your able to i'd save and at same time put extra 100.00 or more towards the principle.  At the same all this is happen your building better credit history, so this should help your score improve.

[ForceMd]

First off, look at your loan contract and see if there is any penalty for paying the loan off early. (Read this link for an overview on different prepayment penalty loans.) If your loan is NOT a simple interest loan, then the best thing that you can do is put the extra money into an account that will earn interest and begin saving for your next car. Unfortunately, if this is a pre-compute (or similar) loan, then no matter what you do, you will not save money by paying the loan early. If it is a simple interest loan, then you should pay as much as you could comfortably afford above the minimum monthly payment. At this point, that is the easiest way to negate the high APR that you are currently paying.

[Anonymous]

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@Anonymous wrote:

I can afford the car, but who wouldn't lower their payment if they could ... ?  Like I said, never a late payment in over a year - that's not so much the issue, but when so much is going towards interest rather than the principle, is what is frustrating.  If I have to continue paying the car at the monthly rate that it is, including for the duration of the loan, then so be it.

I think that is what is not really being understood - I have no intentions of even attempting to re-finance right now - I simply was curious when might be a good time.  I knew that my APR was high, I know that I owe more on the car than it is worth, I knew walking into the purchase that it was going to cost me a lot of money and a lot more money than it would've if my credit wasn't shot.  But when you need a car, you need a car.  I'm happy with the car and I'm fine with the payment, but as I said, if at some point I can re-finance and lower the payment, I'd like to know when that time is.

Anyway, thanks for the help.

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You got the rate you got due to what was going on at the time. I am glad you see that.

99% of car loans are simple interest loans. You can easily help yourself out by doing 1 of two things:

a.) overpaying every car payment you make- the overpayments will help cut the interest/principal on your loans and cause you to pay the loan faster.

b) make a double payment then start a program of making payments (with any extra you can afford) 2xs a month. a bimonthly car payment will also cut into your interst/principal amount faster.

Of course you need to see if there is any prepayment penalty- and work with that.